EU-China Connectivity: thinking big, starting small

Europe has been slow in its response to China’s “One Belt, One Road” initiative. But the pace and interest are picking up. The launch of a so-called “connectivity platform” at the EU-China Summit on June 29 kick-starts a much-needed conversation on synergies between China’s ambitious vision of an inter-connected world and Europe’s multi-billion euro investment plan to boost jobs and growth.

The rewards of such cooperation could be enormous. Europe wants China to invest generously in the new and still under-financed European Fund for Strategic Investment (EFSI), with a special focus on the infrastructure and innovation sectors. The deal also opens the way for European participation in China’s ambitious “One Belt, One Road” project for transport, energy and digital connectivity across China, Europe and Central, West and South Asia.

The “One Belt, One Road” is just one facet of China’s global coming of age. Several European countries have already become founding members of the Asian Infrastructure Investment Bank (AIIB), another major Chinese initiative which will play a key role in financing major segments of the Silk Belt and Road initiatives. A separate 40 billion dollar Silk Road Fund has also been set up.

While European countries joined the AIIB in a disjointed, uncoordinated fashion – despite initial promises to consult each other – the decision taken at the EU-China summit to set up a “connectivity platform” raises hopes that the EU will take the lead in shaping Europe’s participation in “One Belt, One Road” projects.

Ambition and vision

President Xi Jinping and Premier Li Keqiang have been talking up the Silk Road Economic Belt and the 21st Century Maritime Silk Road concepts since 2013. But while strong on vision and ambition, both men have been intriguingly short on detail. Precise information on what is clearly still a work-in-progress is still intriguingly scarce. But a 19-page “Vision and Actions” paper on the various aspects of the project published in March this year goes some way in outlining China’s ambitions of an inter-connected world which revives the “Silk Road Spirit of peace and cooperation, openness and inclusiveness, mutual learning and mutual benefit”.

The project will be run according to “market rules and international norms”, regional integration will be encouraged, with countries along the routes being asked to “work in concert” and urged to promote “policy coordination, facilities connectivity (with a focus on connectivity of their infrastructure construction plans, especially in the energy sector), unimpeded trade, financial integration and people-to-people bonds”. Efforts will be made to promote green and low-carbon infrastructure construction. Customs clearance will be facilitated and cross-border optical cable networks will help build an “Information Silk Road”.

The focus is also on spreading growth and development to China’s less-developed areas by linking north-western and north-eastern Chinese regions to Central, South and West Asian countries. Meanwhile, China’s south-western regions will be connected more deeply to Southeast Asian nations. Significantly, the document also makes clear that the initiative will “enable China to further expand and deepen its opening-up”, suggesting that President Xi intends to use the “One Belt, One Road” project for a new economic reform and liberalisation drive of the kind that followed China’s membership of the World Trade Organisation in 2001.

Last – but definitely not least – while economics takes centre stage in China’s official discourse, the initiative, along with the creation of the AIIB, provides an important insight into Beijing’s determination to take on a stronger regional and global role and to shape the international environment according to its priorities and interests. It is also undoubtedly a well-reflected response to the US-led plans for a Trans-Pacific Partnership. While the TPP clearly excludes China, Beijing insists that the “One Belt, One Road” and AIIB projects are inclusive – and that the US is free to join.

Not altruism

Clearly, China’s aim is not altruistic. Countries along the route will benefit from the increased connectivity. As the world’s top exporting nation, China has an interest in simplifying its transport access to Europe, its leading market. Diversification away from sea transport through the creation of land-based routes, especially high-speed train links could reduce average transport times by several working days. Initial activities will also be geared towards building basic infrastructure, a sector where China is well-equipped to provide engineering skills, construction experience, machinery and equipment as well as materials such as cement and steel in which it has excess capacity. The maritime aspects of the initiative, meanwhile, will help boost China’s sea-going capabilities.

Closer to home, EU-China connectivity will increase bilateral trade, facilitate investments, create new business opportunities for European and Chinese enterprises and boost employment, growth and development in Europe and China. Joining forces will unleash more resources. Implementing the EU investment plan requires the mobilisation of billions of euros of private and public funds as well as capital from the European Investment Bank (EIB) – money that has so far been in short supply. Chinese participation in the European Fund for Strategic Investment would help kick-start the masterplan into action by injecting funds into sectors such as energy, digital, transport and innovation.

The hope is clearly that EU connectivity projects will be able to interest both the Silk Road Fund and the Asian Infrastructure Investment Bank (AIIB). The EU is particularly interested in meeting the long-term infrastructure needs in southern, eastern and central European countries and in the Balkan states. Greece as well as some members of the so-called “16+1” group of central and eastern European countries have already indicated their strong interest in such Chinese investments. If all goes according to plan, the eastern part of Europe could connect seamlessly with the western projects on the new Silk Road.

As the different “One Belt, One Road” projects come on stream, business opportunities will open up for construction, transport, digital and logistical companies – including European enterprises – across the route. EU-China trade is likely to get an important boost from the expected reduction in transport time and costs while EU exporters and investors will gain access to new growth markets in inland China and Central Asia. Such a development would give an added fillip to current EU-China negotiations on a bilateral investment treaty – and make it even more of a compelling necessity.

As it passes through often-volatile and less-developed countries and regions, the “One Belt, One Road” will encounter security challenges. But it also has the potential to unleash economic potential across the way, bringing stability as well as growth to Europe – and China’s – neighbourhood. Such a conversation could be especially useful within the 53-member Asia Europe Meeting (ASEM) where connectivity is also climbing up the agenda.

More than money and good will

It’s not just about money, technology and good will, however. EU participation in investment projects selected for financing under the “One Belt, One Road” initiative will help ensure that they meet strict governance, environmental and technical standards and result in sustainable development.

Moving from dialogue to action will require time and effort – and a willingness to compromise. China has taken its time in putting flesh on the bones of the project and in explaining its many facets to a closely-watching world. A more detailed dialogue is now necessary before the EU and China get down to identifying and working on the nuts and bolts of their cooperation.

A first meeting of the “connectivity platform” is planned in Beijing in September to explore these and other questions. Given their different working methods and cultures, European and Chinese policymakers, bankers and business leaders won’t find it easy to work together. The devil will certainly be in the detail. Expectations will have to be managed on both sides. Selecting projects will be difficult and time-consuming. And there will be no quick results. But in a world desperate for money, jobs and modern infrastructure, China has once again shown its capacity to surprise and to think big.

The last forty years of EU-China diplomatic relations have been marked by just that: diplomacy – as well as trade. Foreign ministries along with trade experts have been in the lead. But as the relationship deepens and expands, the scope and content of EU-China relations have changed – and will change further. Added to the EU-China Urbanisation Partnership, Innovation Dialogue and other important initiatives, including the Investment Agreement under negotiation, the Connectivity Platform should help set EU-China relations on a new and more stable course of practical cooperation to meet 21st Century global challenges.

A shorter version of this article was published in China Daily European Weekly on June 26.

This editorial has been published in preparation to the 5th EU-China Forum